Verisk Analytics Inc has delivered record earnings beating expectations on revenue and EPS front for the first quarter of 2023. Even in uncertain economic times, Verisk Analytics\’ fundamental business strengths position the company for resilient growth. The data and analytics firm is well poised for growth and here are the reasons we believe are need mover for the stock going forward:
First, Verisk has a defensive business model. Property and casualty insurers rely on Verisk\’s tools and information to underwrite policies, process claims, and comply with regulations, as well as for essential data, analytics, and expertise. This dependable revenue stream from insurer clients makes Verisk an attractive investment during volatile times.
Second, Verisk is profiting from key industry trends that are propelling its expansion. Insurers of property and casualty are increasingly employing technological solutions and automation to reduce expenses and increase productivity. With its sophisticated data analytics offerings, Verisk is well positioned to profit from this trend. Larger insurers are implementing Verisk\’s solutions internally in order to realise the greatest cost reductions.
Third, Verisk\’s management and operational strategy is more focused. In order to streamline operations and concentrate solely on the property and casualty insurance vertical, the company has recently divested several non-essential businesses. This enhanced strategic focus, coupled with Verisk\’s accelerating growth, may result in increased returns for investors.
In summation, the company\’s growth potential is supported by its resilient business model, position as a provider of solutions for critical industry trends, and more disciplined management approach. Verisk stands to benefit as P&C insurers continue to invest in technology and automation to drive efficiencies, given its specialized data and analytics offerings. Verisk\’s stable yet growing revenue stream, defensive qualities, and potential for higher returns make it an attractive investment in today\’s volatile market climate.
Earnings Insights & Expectations : Verisk Analytics ($VRSK)
Verisk Analytics recently reported impressive Q1 2023 earnings. The company beat both non-GAAP and GAAP EPS estimates by $0.10 and $0.20, respectively. The revenue for the quarter also exceeded expectations, with $651.6M in actual revenue, beating estimates by $18.04M.
During the first quarter of 2023, Verisk Analytics\’ net cash provided by operating activities was $365.3 million, down $34.3 million or 8.6% from $399.6 million in 2022. Operating cash flows decreased due to dispositions in our former Energy, Specialised Markets, and Verisk Financial Services segments, including one-time transaction fees related to the sale of our Energy business, partially offset by an increase in operating profit in our Insurance segment.
For the three months ended March 31, 2023, net cash provided by investing activities was $2,967.1 million, primarily due to proceeds from the sale of our Energy business of $3,066.4 million, partially offset by acquisitions and a purchase of an additional controlling interest of $37.2 million, capital expenditures of $61.2 million, and investments in nonpublic companies of $0.8 million. For the three months ended March 31, 2022, net cash provided by investing activities was $26.3 million, primarily due to proceeds from the sale of our 3E business of $575.0 million, partially offset by acquisitions and purchase of a controlling interest of $447.7 million, capital expenditures of $60.0 million, and investments in nonpublic companies of $41.0 million.
Net cash used in financing activities of $3,405.0 million for the three months ended March 31, 2023 was primarily driven by the funding of a $2,500.0 million accelerated share repurchase programme, repayments of debt under our revolving credit and bilateral credit facilities of $1,390.0 million, and dividend payments of
$49.2 million, partially offset by proceeds from the issuance of our 2033 Senior Notes of $495.2 million and stock options exercised. For the three months ended March 31, 2022, net cash used in financing activities was $293.6 million, driven by repurchases of common stock of $571.3 million and dividend payments of $49.4 million, partially offset by proceeds, net of repayments, of debt under our Credit Facility of $200.0 million and our term loan facility of $125.0 million.
Looking ahead to the next quarter, the revenue estimate for the upcoming quarter is $653.23M, which would be a slight increase from the previous quarter\’s actual revenue of $651.6M.
Discovering Growth Drivers : Verisk Analytics
- Strong revenue and earnings growth in underwriting & rating and
When measured on an organic constant currency basis, Verisk Analytics\’s revenue for the first quarter of 2023 increased by 9.8% when compared to the same period in 2022. This expansion was made possible by the solid performance of its underwriting and rating and claims businesses, which, respectively, increased their revenue by 9.1% and 11.4%. The underwriting and rating area offers data and analytics solutions to assist insurance companies in risk assessment, the pricing of policies, and the optimisation of portfolios. The claims section offers data and analytics solutions to the insurance industry in order to assist companies in the management of claims, the detection of fraud, and the enhancement of customer satisfaction.
Additionally, Verisk Analytics reported an increase in its adjusted earnings per share of 16.2% for the first quarter of 2023, in comparison to the same time in 2022. This rise is a reflection of the contribution made by growth in revenue and cost control across all of its operations. Verisk Analytics has a competitive advantage in the insurance sector thanks to its massive and proprietary data assets, its advanced analytics capabilities, and its long-standing customer relationships. All of these factors combine to provide Verisk Analytics an edge over its competitors.
- Share repurchase and sale of non-core businesses
Verisk Analytics has been working to increase both its profitability and its shareholder value by concentrating on its main insurance business and selling off its non-essential companies. Wood Mackenzie, the company\’s Energy business, was sold to Veritas Capital in February 2023 for a total of
$3.1 billion in net cash consideration, along with the potential for future further contingent payment of up to $200 million. Wood Mackenzie offers its clients in the energy and natural resources industries data and analytics-based solutions. This transaction took place in 2022, and the corporation sold its environmental health and safety division, known as 3E, to Genstar Capital for a net cash consideration of $205 million. The chemical and life sciences industries can benefit from the data and compliance solutions offered by 3E.
The business also parted ways with its Financial Services division, which offered data and analytics solutions to the banking and capital markets, and sold it to Moody\’s Corporation for a net cash payment of $250 million. Moody\’s purchased this division from the corporation. The company utilised the profits from these sales to finance an accelerated share repurchase programme with a total value of $2.5 billion during the first quarter of 2023. As a result, the company\’s outstanding share count was lowered by approximately 10%. The company also intends to utilise the proceeds to pay off existing debt, make investments in organic growth, and pursue prospective mergers and acquisitions.
- Dividend policy and strong balance sheet
As of the end of the first quarter in 2023, Verisk Analytics had a healthy balance sheet with $1.4 billion in cash and cash equivalents as well as $4.1 billion in long-term debt. The debt-to-equity ratio of the company is 1.18, which is significantly lower than the 1.33 that is typical for the industry.
Additionally, the organisation maintains a dividend policy with the intention of making consistent financial distributions to its stockholders. The dividend yield for the company is 0.64%, and it distributes a quarterly dividend to shareholders in the amount of 34 cents per share. Over the course of the past five years, the dividend payout has seen yearly increases of 13% thanks to the company
- Continued investment in innovation and technology
Verisk Analytics is dedicated to enhancing both the products it offers and the experience it provides for its customers by investing in new innovations and technologies. The research and development expenditures of the company are around 8% of its yearly revenues, which is a significantly larger percentage than the average of 6% for the industry.
Additionally, the company engages in mergers and acquisitions, as well as strategic partnerships, with forward-thinking businesses that either enhance its current capabilities or broaden its access to the market. For instance, the company bought Insurify in April 2023. Insurify is an online insurance marketplace that makes use of artificial intelligence in order to give users with personalised insurance rates and suggestions. Verisk Cloud Studio was a cloud-based platform that was launched by the firm in March 2023 in partnership with Google Cloud. The platform enabled insurers to gain access to Verisk\’s data and analytics solutions by utilising Google Cloud\’s infrastructure
- Expansion into new markets and locations
Verisk Analytics is broadening its business into new industries and regions in order to diversify its revenue sources and make better use of the data assets it possesses. The corporation has operations in over 30 countries across six continents, including North America, Europe, Asia-Pacific, Latin America, and Africa as well as the Middle East. The international markets have a bigger potential for expansion than the market in the United States, which accounts for around 25 percent of the company\’s total revenue.
In addition, the company focuses on expanding into new areas of the insurance market, such as personal lines, small commercial lines, speciality lines, life insurance, health insurance, and reinsurance. The organisation provides individualised solutions that are tailored to meet the distinct requirements and preferences of various market subgroups.
- Possible mergers, acquisitions, or collaborations
Verisk Analytics is constantly on the lookout for possibilities to either purchase or form partnerships with firms that can either improve its position in the market or generate value for the company\’s customers and shareholders. In 2022, the company purchased FAST, a premier software company that specialises in offering end-to-end solutions to businesses in the life insurance and annuity industries. Verisk\’s capabilities in the life insurance category were significantly improved as a result of the acquisition, which also made it possible for Verisk to provide a full suite of solutions that cover the entirety of the insurance value chain.
The company launched Verisk Data Exchange (VDX) in partnership with Amazon Web Services (AWS). VDX is a cloud-based platform that enables insurers to access and analyse data from connected devices including telematics, smart homes, and wearable devices. Insurers were able to gain insights into client behaviour, risk, and preferences as a result of the relationship, which made use of the cloud infrastructure provided by AWS and the data analytics skills of Verisk.
- Increasing need for data analytics and risk assessment solutions
Verisk Analytics is in an excellent position to capitalise on the growing demand for data analytics and risk assessment solutions in the insurance sector. As a result of the ongoing digital transformation that the insurance business is through, insurance companies are being forced to make use of data and analytics in order to enhance their decision-making abilities, operational efficiency, customer experience, and profitability. Verisk Analytics provides insurers with a comprehensive range of solutions that cover the entirety of the insurance lifecycle, beginning with product development and underwriting and progressing all the way through claims administration and fraud detection.
In addition to this, Verisk Analytics gives insurers access to their own proprietary data sets that span a wide range of risk categories, including property, casualty, auto, health, life, environmental, and financial risks. In order to create insights and recommendations from various data sets, Verisk Analytics makes use of advanced analytics techniques such as artificial intelligence, machine learning, natural language processing, and computer vision. Verisk Analytics assists insurance companies in optimising their pricing strategies, improving their risk selection and segmentation, decreasing their loss ratios, increasing their client retention and loyalty, and meeting the needs of various regulatory agencies.
Valuation Estimates : Verisk Analytics ($VRSK)
| Valuation Ratios | Current | 2023E | 2024E | 2025E |
| EV/ Sales | 13.61 | 14.41 | 14.20 | 14.30 |
| EV/ EBITDA | 27.22 | 26.83 | 25.79 | 25.62 |
| EV/ EBIT | 32.46 | 32.52 | 31.17 | 30.13 |
| Price/Earnings | 35.15 | 49.71 | 42.86 | 41.88 |
Company Description – Verisk Analytics (NASDAQ: VRSK)
Verisk Analytics, Inc. is a provider of data analytics that works primarily with the insurance business. Customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, and a variety of other sectors can take advantage of the predictive analytics and decision support solutions provided by the company. The Insurance sector of the Company principally services its property and casualty (P&C) insurance customers.
It focuses on the forecast of loss, the selection and pricing of risk, and compliance with its customers\’ reporting obligations in each state in which the Company operates in the United States. The company also develops and utilizes machine learned and artificially intelligent models to anticipate scenarios and provide both standard and customized analytics that help its customers better run their companies, including detecting fraud before and after a loss event and quantifying losses.
These models are used to forecast situations and produce both standard and customized analytics. In addition to this, it assists businesses and governments in better anticipating and managing risks associated to climate and weather.
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